Chapter 2. The Christian Middle Ages
1. The Roman Law, Property Rights and Laissez-faire
One of the most powerful influences in the legal and political thought and institutions
of the Christian West during the Middle Ages was the Roman Law, derived from the Republic
Public and Empire of Ancient Rome.
Roman law classically developed in the first to the third centuries A.D.
Private law developed the theory of the absolute right of private property and of freedom of
trade and contract.
While Roman public law theoretically allowed state interference in the life of the citizen,
there was little such interference in the late republic and early empire.
That property rights and laissez-faire were therefore the fundamental heritage of the Roman
law to later centuries, and much of it was adopted by countries of the Christian West.
Though the Roman Empire collapsed in the 4th and 5th centuries, its legal heritage continued
as embodied in two great collections of the Roman law.
For example, in the West, the Theodosian Code, promulgated by the Emperor Theodosius in 438 AD, and in the East, the great four-volume Corpus Juris Civilis, promulgated by the Byzantine Christian Emperor Justinian in the 530s.
Both collections emphasized strongly that the just price was simply any price arrived
at by free and voluntary bargaining between buyer and seller. Each man has the right to
do what he wants with his property, and therefore has the right to make contracts to give away,
buy or sell such property. Hence, whatever price is freely arrived at is just. Thus,
In the corpus, several leading Roman jurists of the third century quoted the early second
century jurist Pomponius in a classic expression of the morality of laissez-faire.
In buying and selling, natural law permits the one party to buy for less and the other
to sell for more than the thing is worth.
Thus, each party is allowed to outwit the other.
And it is naturally permitted to parties to circumvent each other in the price of buying
and selling.
The only problem here is the odd phrase, the thing is worth, which assumes that there is
some value other than free bargaining that expresses some true worth, a phrase that would
prove to be an unfortunate harbinger of the future.
More specifically, the Theodosian Code was crystal clear.
Any price set by free and voluntary bargaining is just and legitimate, the only exception
being a contract made by children.
Force or fraud, as infringements on property rights, were, of course, considered illegal.
The Code held explicitly that ignorance of the value of a good by either buyer or seller
was insufficient ground for authorities to step in and rescind the voluntarily agreed
contract.
The Theodosian Code was carried forward in Western Europe.
For example, the Visigothic Law set forth in the 6th and 7th centuries, and the Bavarian
Law of the early 8th century.
Bavarian Law added the explicit provision that a buyer may not rescind a sale because
as he later decides that the agreed price was too high.
This laissez-faire aspect of the Theodosian Code later became incorporated into Christian
canon law by being included in the collection of capitularies, decrees, by St. Benedictus
Diaconis in the 9th century A.D.
While the Justinian corpus promulgated in the east was equally devoted to laissez-faire,
It included a minor element that was later to grow and justify a tax upon free bargaining.
As part of the Justinian discussion of how courts can appraise property for payment of
damages, the Code mentioned that if a seller has sold his property for less than half the
just price, then he suffers great loss, la esio enormous, and the seller is then entitled
would either to get back the difference between the original price and the just price from
the buyer, or else get his property back at that original price.
This clause was apparently meant only to apply to real estate and to compensations for damages,
where authorities must somehow assess the true price, and it had no influence on the
The Laws of the Next Centuries, but it was to yield unfortunate effects in the future.
2. Early Christian Attitudes Toward Merchants
Roman law was not the only influence on economic ideas in the Middle Ages. Ambivalent attitudes
in the early Christian tradition also proved highly important.
Economic matters were, of course, scarcely central to either the Old or New Testament,
and scattered economic pronouncements are contradictory or subject to ambivalent interpretation.
Fulminations against excessive love of money do not necessarily imply hostility to commerce
or wealth.
One remarkable aspect of the Old Testament, however, is its repeated, almost pre-Calvinist
and the first extolling of work for its own sake.
In contrast to the contemptuous attitude toward labor of the Greek philosophers, the Old Testament
is filled with exhortations in favor of work, from the be fruitful and multiply of Genesis
to enjoy life in your toil at which you toil under the sun of Ecclesiastes.
Oddly, these calls to labor are often accompanied by admonitions against the accumulation of wealth.
Later, in the second century B.C., the Hebrew scribe who wrote the apocryphal book Ecclesiasticus goes so far as to extol labor as a sacred calling.
Manual workers, he writes, keep stable the fabric of the world, and their prayer is in the practice of their trade.
Yet the pursuit of money is condemned, and merchants are habitually treated with deep suspicion.
A merchant can hardly keep from wrongdoing, and a tradesman will not be declared innocent of sin.
And yet, in the same book of Ecclesiasticus, the reader is instructed not to be ashamed of profit or success in business.
The attitude of the early Christians, including Jesus and the apostles, toward work and trade, was colored by their intense expectation of the imminent end of the world and of the coming of the kingdom of God.
Obviously, if one expects the impending end of the world, one is inclined to have little patience for such activities as investing or accumulating wealth.
Rather, the tendency is to act as the lilies of the field, to follow Jesus and forget about mundane matters.
It was in this context that we must understand St. Paul's famous, the love of money is the root of all evil.
By approximately 100 A.D., however, the books of the New Testament written by St. John make it clear that the Christian Church had abandoned the idea of the eminent end of the world.
End of the World.
But the Hellenistic and the Gospel heritage fused to lead the early Church Fathers into
a retreatist view of the world and its economic activities, combined with fulminations against
wealth and merchants who tend to amass such wealth.
The Church Fathers railed against mercantile activities as necessarily stamped with the
The Sin of Greed and, as almost always, accompanied by deceit and fraud.
Leading the parade was the mystical and apocalyptic Tertullian, 160 to 240, a prominent Carthaginian
lawyer who converted late in life to Christianity and eventually formed his own heretical sect.
To Tertullian, attack on merchants and money-making was part and parcel of a general Philippic
against the Secular World, which he expected at any moment to founder on the shoals of
excess population so that the earth would soon suffer from epidemics, famines, wars,
and the earth's opening to swallow whole cities as a grisly solution to the overpopulation
problem.
Two centuries later, the fiery St. Jerome, circa 340 to 420, educated in Rome but also
so influenced by the Eastern Fathers, took up the theme, proclaiming the fallacy that
in trade, one man's gain must be achieved by means of the other man's loss.
All riches come from iniquity, and unless one has lost, another cannot gain.
Hence that common opinion seems to me to be very true.
The rich man is unjust, or the heir of an unjust one.
And yet there was another contradictory strain even in Jerome who also declared that a wise
man with riches has greater glory than one who is wise only, for he can accomplish more
good things.
Wealth is not an obstacle to the rich man who uses it well.
Probably the most intelligent attitude toward wealth and money-making among the early Church
of Church Fathers was that of the Athenian-born Eastern father Clement of Alexandria, circa
150 to 215.
While Clement counseled that property be used for the good of the community, he endorsed
private property and the accumulation of wealth.
He attacked as foolish the ascetic ideal of divesting oneself of one's possessions.
As Clement wisely put it, employing a natural law theme,
We must not cast away riches which can benefit our neighbor.
Possessions were made to be possessed.
Goods are called goods because they do good, and they have been provided by God for the
good of men.
They are at hand and serve as the material, the instruments for a good use in the hand
of him who knows how to use them.
and also took a hard-nosed attitude toward the ruthless poor.
If living without possessions was so desirable, he pointed out, then that whole swarm of proletarians,
derelicts and beggars who live from hand to mouth, all those wretched cast out upon the
streets though they live in ignorance of God and of His justice, would be the most blessed
and the most religious, and the only candidates for eternal life simply because they are penniless.
The early Church Fathers culminated in the great St. Augustine, 354-430, who, living
at the time of the sack of Rome in 410 and of the collapse of the Roman Empire, had to
look ahead to a post-ancient world which he was greatly to influence.
Born in Numidia in Africa, Aurelius Augustinus was educated in Carthage and became a professor
of rhetoric in Milan.
Baptized a Christian at the age of 32, St. Augustine became Bishop of Hippo in his native
North Africa.
The Roman Empire under Constantine had embraced Christianity a century earlier, and Augustine
Augustine wrote his great work The City of God as a rebuttal to the charge that the embrace
of Christianity had resulted in the fall of Rome.
Augustine's economic views were scattered throughout The City of God and his other highly
influential writings, but he definitely and presumably independently of Aristotle arrived
at the view that people's payments for goods, the valuation they placed on them was determined
and by their own needs, rather than by any more objective criterion, or by their rank
in the order of nature.
This was at least the basis of the later Austrian theory of subjective value.
He also pointed out that it was the common desire of all men to buy cheap and to sell
dear.
Furthermore, Augustine was the first church father to have a positive attitude towards
Rebutting the Common Patristic Charges Against the Merchants, Augustine pointed out that
they perform a beneficial service by transporting goods over great distances and selling them
to the consumer.
Since according to Christian principle the laborer is worthy of his hire, then the merchant
too deserved compensation for his activities and labor.
To the common charge of endemic deceit and fraud in the mercantile trades, Augustine
cogently replied that any such lies and perjuries were the fault not of the trade, but of the
trader himself.
Such sins originated in the iniquity of the person, not in his occupation.
After all, Augustine pointed out, shoemakers and farmers are also capable of lies and perjuries,
And yet the Church Fathers had not condemned their occupations as being per se evil.
Clearing the merchants of the stain of inherent evil proved enormously influential in the
following centuries and was quoted time and again in the flowering of Christian thought
in the 12th and 13th centuries.
A less tangible but still important contribution to social thought was St. Augustine's recasting
Dictating of the Ancient World's View of the Human Personality
To the Greek philosophers, the individual personality was to be molded to conform to
the needs and desires of the polis. Dictation by the polis necessarily meant a static society,
with discouragement directed towards any innovating entrepreneurs trying to break out of the
and Contemporary Mold.
But St. Augustine's stress was on the individual's personality unfolding itself and therefore
progressing over time.
Hence Augustine's profound emphasis on the individual at least set the stage indirectly
for an attitude favorable to innovation, economic growth and development.
That aspect of Augustine's thought, however, was not really stressed by the 13th century
Christian theologians and philosophers who built on Augustine's thought.
It is ironic that the man who set the stage for optimism and a theory of human progress
should on his deathbed find the barbarian hordes besieging his beloved city of Hippo.
If St. Augustine looked benignly on the role of the merchant, he was also favorable, though
not as warmly, toward the social role of rulers of state.
On the one hand, Augustine took up and expanded Cicero's parable, demonstrating that Alexander
the Great was simply a pirate writ large, and that the state is nothing but a large
scale and settled robber band.
In his famous City of God, Augustine asks, And so, if justice is left out, what are kingdoms
except great robber bands?
For what are robber bands except little kingdoms?
The band also is a group of men governed by the orders of a leader, bound by a social
compact, and its booty is divided according to a law agreed upon.
If by repeatedly adding desperate men this plague grows to the point where it holds territory
and establishes a fixed seat, seizes cities and subdues people, then it more conspicuously
assumes the name of kingdom, and this name is now openly granted to it, not for any subtraction
of cupidity but by addition of impunity.
For it was an elegant and true reply that was made to Alexander the Great by a certain
pirate whom he had captured.
When the king asked him what he was thinking of, that he should molest the sea, he said
with defiant independence, the same as you when you molest the world.
Since I do this with a little ship, I am called a pirate.
You do it with a great fleet and are called emperor.
And Augustine ends by approving the role of the State, even though it is a robber band
on a large scale.
For while he stressed the individual rather than the polis, in pre-Calvinist fashion Augustine
emphasized the wickedness and depravity of man.
In this fallen, wicked and sinful world, State rule, though unpleasant and coercive, becomes
necessary.
Hence, Augustine supported the forcible crushing by the Christian Church in North Africa of the Donatist heresy, which indeed believed, in contrast to Augustine, that all kings were necessarily evil.
The likening of the head of state to a large-scale brigand, however, was resurrected in its original anti-state context by the great pope, Gregory VII, in the course of his struggle with the kings of Europe over his Gregorian reforms in the late 11th century.
This strain of bitter anti-statism, then, emerges from time to time in the early Christian era and in the Middle Ages.
3. The Carolingians and Canon Law
Canon law was the law governing the Church, and during the early Christian era and the Middle Ages,
Early canon law consisted of papal decretals, decrees of church councils, and the writings of the church fathers.
We have seen that later canon law also incorporated much of the Roman law.
But canon law also included something else basically pernicious.
The Decrees and Regulations, Capitularies, of the Carolingian Empire in the latter 8th and 9th centuries.
From the 5th to the 10th centuries, the economic and political chaos of the Dark Ages prevailed throughout Europe,
and there was, consequently, little or no room for the development of political, legal or economic thought.
The only exception was the activities of the Carolingian Empire, which burgeoned in Western Europe.
The most important Carolingian emperor was Charlemagne, 742 to 814,
and his rule developed on to his successors during the remainder of the 9th century.
In capitulary after capitulary, Charlemagne and his successors laid down detailed regulations
for every aspect of economic, political and religious life throughout the Empire.
Many of these regulations became incorporated into the canon law of later centuries,
thereby remaining influential well after the crumbling of the Carolingian Empire itself.
Charlemagne built his despotic network of regulations on a shaky foundation.
Thus, the important Church Council of Nicaea, 325, had forbidden any clergymen from engaging
in any economic activities leading to shameful gain, turpe lucrum.
In his council at Nijmegen, 806, Charlemagne revived, greatly broadened, and imposed the
old doctrine of turpe lucrum.
But now the prohibition was extended from the clergy to everyone, and the definition
broadened from fraud to all greed and avarice, and included any disobedience of Charlemagne's
extensive price regulations.
Any market deviations from these fixed prices were accused of being profiteering by either
buyers or sellers, and hence torpe lucrum.
As a corollary, all speculative buying and selling in foodstuffs was prohibited.
Moreover, in foreshadowing the English common law prohibition of forestalling, any sale
of goods outside and at higher prices than the regular markets was prohibited.
Since the English common law was motivated not by a misguided attempt to aid the poor,
But in order to confer monopoly privileges on local owners of market sites, it is highly
probable that Charlemagne, too, was trying to cartelize markets and confer privileges
on market owners.
Every arbitrary price decree of the Carolingian officialdom was, of course, revered by the
Carolingians as the just price.
Normally this coerced price was often near what had been a customary or current price
in the neighborhood.
Otherwise it would be difficult to conceive how the Carolingian officials would discover
what price was supposed to be just.
But this meant a futile and uneconomic attempt to freeze all prices on the basis of some
past market status quo.
The problem, then, is that later canon law incorporated the idea of the just price as
being the state decreed price.
The banning of any price higher than the current market price was reimposed by the
late Carolingian emperor, Carloman, in 1884, and incorporated into the canon law collection
of Regino of Prum in 900, and over a century later into that of Burchard of Worms.
Remarkably the two contradictory legal strains, the laissez-faire theme of the Theodosian
Code and the statist Carolingian motif, both found their way into the great collection
at the basis of the medieval discipline of the canon law, that of Bishop Evo of Chartres
at the Turn of the Twelfth Century. There, in the same collection, we find the view that
the just price is any price voluntarily arrived at by buyer and seller, and, also, the contradictory
view that the just price is one decreed by the State, especially if it be the common
price in general markets.
4. Canonists and Romanists at the University of Bologna
The High Middle Ages were established by the commercial revolution of the 11th to 13th
centuries in which trade, production and finance flourished, living standards rose markedly
and the institutions of commercial capitalism developed in Western Europe. With the advent
of Economic Growth and Prosperity, Canon and Roman Law, Learning and Social Thought, also
began to flourish once again.
The fountainhead and great center of both Canon and Roman Law studies during the High
Middle Ages was the University of Bologna in Italy, flourishing from the early 12th
century to the latter part of the 13th.
During those two centuries, both canon and roman law, including the Justinian Code, were
revived at Bologna, influenced each other, and penetrated to the rest of Western Europe.
The great and definitive collection of canon law, the Decretum, was published around the
year 1140 by the Italian monk, Johannes Gracian, who founded canon law studies at the University
of Bologna.
The Decretum was the definitive canon law work from that point on, and for the remainder
of the 12th century, Bolognese scholars, known as the Decretists, elaborated, discussed,
and wrote glosses on Gratian's work. Gratian himself and his early Glossators took a traditional
zealous anti-merchant position. Speculation, buying cheap to sell deer, purely mercantile
The first Decretus to begin to take an intelligent position on the activities of the merchant
was Rufanus, a professor at Bologna who later became Bishop of Assisi and then Archbishop
of Sorrento.
In his Summa, 1157-1159, to the Decretum, Rufanus pointed out that artisans and craftsmen
Craftsmen could buy materials cheaply, work on them and transform them, and then sell
the product at a higher price. This form of buying cheap and selling deer was justified
by the craftsman's expenses and labor, and is permissible even to the clergy as well
as to the laity. However, another activity, practiced by the pure merchant or speculator
who buys cheap and sells dear without transforming the product is, according to Rufinus, absolutely
forbidden to the clergy.
The lay merchant, however, could honorably engage in these transactions, provided that
he had either made heavy expenditures or was fatigued by hard labor.
But a pure entrepreneurial cheap purchase to be followed by a sale when market prices
This partial rehabilitation of the merchant by the decretists was included in the important
Summa of 1188 of Hugguccio, professor at Polonia, later chosen bishop of Ferrara.
Hugguccio repeated the views of Rufinus, but shifted the justification of the merchant
from labor or expenses to actions that provide for the needs of the merchant's family.
Hugguccio's stress, then, was not on objective costs, but on the subjective intentions of
the merchant, supposing that they could be discovered.
Was it mere greed, or was it a desire to fulfill his family's needs?
Clearly, Hugguccio allowed considerable room for mercantile activities.
Moreover, Hugguccio began a radical reconstruction of patristic teachings about private property.
From the time of Hugguccio, private property was to be considered a sacrosanct right derived
from the natural law.
The property of individuals and communities was, at least in principle, supposed to be
free from arbitrary invasion on the part of the state.
As moderator and arbiter of his own goods, an individual owner could use and dispose
of them as he saw fit, provided that he did not violate general legal rules.
A ruler could only expropriate the property of an innocent subject if public necessity
required it.
This of course was a hole in the system of rights, since public necessity could be and
was an elastic concept.
But this concept of private property was an enormous advance over patristic teachings.
After the late 12th century, the decretist movement in canon law gave way to the decretalists,
who based themselves on a stream of papal edicts, or decretals, from the late 12th to
the 13th century.
Since the pope is supreme in the Catholic Church, the decretals pronounced by him and
and his Vatican Curia automatically became incorporated into the body of canon law.
In this way, canon law came to differ from that of Gratian and the Decretists, who built
the law chiefly on ancient sources.
But the new decretals were scarcely arbitrary.
They built on and elaborated previous canon law.
The continuity of the building process was greatly aided by the fact that several of
of these popes were former Bolognese. Thus Pope Alexander III, Roland Bandinelli, who
initiated the new decretal process and who enjoyed a long papal reign from 1159 to 1181,
had studied both law and theology at Bologna, was probably a professor there and had direct
Contact with the Great Grecian A distinguished legal scholar, who himself
had written an early Summa to Grecian's Decretum, Alexander became Cardinal and Chancellor before
being elected to the papacy. Another significant papal decretalist, Pope Innocent II, Lothair
Pierre de Seigne, who reigned from 1198 to 1216, had studied canon law under Hugguccio
at Bologna.
Finally, Pope Gregory IX, Ugollino de Seigne, a pontiff from 1227 to 1241, commissioned
and published the momentous Decretals in 1234, incorporating Gratian's Decretum of a century
before, in addition to the various papal decretals. Gregory 9th's decretals became the standard
work of canon law from that point on.
The decretalists had a far more favorable attitude toward merchants and the free market
than had the early decretists. In the first place, instead of the negative patristic attitude
toward Merchants and Trade, the Decretalists, beginning with Pope Alexander III and continuing
through Gregory IX, incorporated the free market attitude of the Roman law.
Unfortunately it was not the pure laissez-faire attitude of the Theodosian or even Justinian
law.
For when the Justinian Code came to Bologna and Western Europe at the beginning of the
of the 12th Century, the French author of the Brachologus took up the Laecio Enormous
Principle of the Justinian Code and greatly changed its meaning.
Instead of applying the concept of just price differing from the actual price to the assessment
of damages as in the Justinian Code, the Brachologus expanded the concept from real estate to all
all goods, and from assessing damages to actual sales.
In the hands of the Brachologus, if any sale, even a voluntary one, had been made at less
than half the just price, the seller could present the buyer with the choice, either
pay me the difference between the sale price and the just price, or else rescind the contract,
with the buyer returning the goods and the seller returning the payment.
It has been pointed out that this was not a cartelizing device, since neither third
parties nor the state could step in to enforce Laecio Enormis.
The enforcement had to be done on a charge made by the seller himself.
The Roman law developing during the 12th and 13th centuries was largely the product of
The University of Bologna, where Roman law studies had been founded by Ernerius in the
late 11th century.
In the mid-12th century, the Bolognese Roman jurists began to incorporate the broader concept
of Laecio Enormis of the Brachologus.
About 1150, the Provençal Locodi, a popular adaptation of a recent Bolognese summa, added
Another Fateful Expansion of Laecio Enormous. For the first time this Provençal work included
buyers as well as sellers as suffering from Laecio Enormous, when the sale price was significantly
higher than the just price. In the low Coty, if a buyer had paid more than twice the true
Remarkably, when the low cote was translated back into Latin, this new extended restriction
on laissez-faire was added to the Roman law, particularly by Albericus, professor of Roman
and Law at Bologna in his Canon Law collection at the end of the 12th century.
The burgeoning principle of Laecio Enormis reached its final extension in the late 12th
century work of the Bolognese trained Petrus Placentinus. Placentinus lowered the maximum
permissible price to 1.5 times the just price, beyond which the principle of Laecio Enormis
went into effect.
This final expansion was incorporated into the works of the three great Bolognese Roman
law professors of the thirteenth century, Azo circa 1210, Azo's highly influential
student and follower Acrisius circa 1228 to 1260, a native of Florence, and the culmination
of the Bolognese School in Odofretas in the mid-13th century.
While it is true that the 12th and 13th century Romanists took the trivial concept of Laecio
enormous and made it a significant restriction on freedom of bargaining and laissez-faire,
at least by the late 12th century they also made clear that there was to be full freedom
Freedom of Bargaining and Freedom to Outwit the Other within the Matrix of Laecio Enormis.
The Decretalists, beginning with Pope Alexander III, incorporated much of this developing
Roman law.
This meant that Church law now included not only the patristic fulminations against merchants
per se, but also the contrasting Romanist tradition of full freedom of bargaining within
in the Laecio-enormous Matrix.
The decretalists reached their culmination after building on and glossing the decretals
of Gregory IX, in the works of Cardinal Henricus Hostiensis de Segucio, first in the late 1250s
and finally in 1271, the year of his death.
Hostiensis had studied Canon and Roman law at Bologna, had taught in England and France,
and was Cardinal Archbishop of Ostia.
The decretalists justified speculative buying and selling, freeing it from the sin of torpe
lucrum by adopting and expanding the Hougouchian line that speculation was permissible if the
speculator was acting to fulfill the needs of his family.
In the gloss of the French-Dominican canonist William of Wren circa 1250, this area of
freedom was broadened still further.
A merchant's or speculator's actions were not considered sinful unless he was driven
by a wanton desire for having temporal riches, not for necessary use or utility but for curiosity,
so that the fancy is charmed by such.
Just as a magpie or a crow is enticed by coins, which they discover and hide away.
Surely this kind of stricture, which can only apply to a few persons in the real world,
had come very far from the patristic denunciations of merchants and traders per se.
Another loosening of restrictions came with Alanis Anglicus, an English-born professor
of Canon Law at Bologna, writing in the first two decades of the thirteenth century.
Alanis declared that no torpe lucrum, or usury for that matter, could exist if the future
price of a good was uncertain in the mind of the merchant.
Not only is uncertainty always present in the market, but also it is impossible for
for Outside Courts or Authorities to prove that a merchant did not feel uncertain when
he bought or sold.
In effect, all torpe lucrum restrictions on trade or speculation had now been removed.
In analyzing business profits, the later 13th century canonists added to the older justification
of profit as covering labor plus expenses.
This was the element of risk, present in every business situation.
Increase of price as a consequence of risk was first justified in the prominent canon
law commentaries of Pope Innocent IV, Sinibaldo Fieschi, published between 1246 and 1253.
Before becoming pope, Innocent had been a native of Genoa and a student of Roman and
and Canon Law at Bologna, a professor of Roman law at that university, and finally
a cardinal and a famous statesman.
If transactions were to be sinful and illegal beyond a certain zone above or below the just
price, then the church and the authorities had to find some way of figuring out what
the just price was supposed to be.
This had not been a problem before the twelfth and thirteenth centuries, since the doctrine
of Laecio enormous had not really been applied before.
The Romanist and Canonist solution, reminiscent of Carolingian doctrine, was that the just
price was the going, current, common market price, the communis estimatio.
This meant either the competitive general market price as contrasted to single isolated
transactions, or it could refer to prices fixed by governments or government-privileged
guilds since such controls, by strict legality, would be the going de jure price.
Perhaps it would have been beneath the dignity of these jurists to sanction or even recognize
Placentinus used this criterion in late 12th century Roman jurisprudence, as did in particular
Oso in the early 13th.
Oso was liberal enough to refer to the price of a sale equaling that of any other comparable
sale as being a just price.
St. Acursius and after him, Odofretus, explicitly referred to the general or common market price
as being the standard of justice.
As Acursius put it, a thing was valued at that for which it could be commonly sold.
The canon lawyers adopted the same criterion for the just price.
Influenced by Carolingian practice and by hints from the sixth century rule of St. Benedict,
The late 12th century canonist and student of Gratian, Simon of Bossignano, first described
the true value of goods as the price for which they commonly sold.
The same position was then taken by the Decretalists in the 13th century.
Canonists and Romanists alike were now agreed on the common price of a good as the just
one.
But still, the developed canonists of the thirteenth century had a problem.
On the one hand, they had adopted the Roman law view that all free bargaining was legitimate
except for a zone more than a certain degree above or beyond the just price, which they
held to be the going, common market price.
But, on the other hand, they had inherited from the church fathers and the early decretists
a hostility toward mercantile, especially speculative, transactions.
How could they square this contradiction?
Partly, as we have seen, they were able to weaken the extent of shameful speculation.
Also, from the thirteenth century on, the Church and its canon lawyers largely solved
the problem through the highly sensible doctrine of the Two Forums, over which the Church exercised
Jurisdiction.
The external forum, the jus fori, judged the social activities of Christians in public
ecclesiastical courts.
There, the courts judged offenses against the Church and her common law in much the
same procedures as the secular courts.
On the other hand, the internal forum, the jus poli, was the confessional, in which the
The priest judged individual Christians on the basis of their personal relation to God.
The two forums were separate and distinct, the respective judgments on two different
levels.
While the church presumed to rule over both, the one was external and social, the other
private and personal.
The doctrine of the two forums enabled the canonists to resolve the seeming contradiction
in Canon Law.
The free-bargaining Laecio-enormis common-market principle was the realm of external law and
the open court, where, in other words, a roughly free market could prevail.
On the other hand, the strictures against mercantile profits going beyond labor, costs
and risk were a matter not for the state and external law, but for conscience in the confessional.
Even more obviously for the confessional alone were the injunctions against trade or speculation based on avarice as going beyond honorable need to support one's family.
Clearly only the man himself, internally in his conscience, could know his intentions. They were scarcely observable by external law.
5. The Canonist Prohibition of Usury
The great relaxation of moral and legal restrictions and prohibitions against trade that permeated
the Canonists and Romanists in the Middle Ages unfortunately did not apply to the stern
prohibitions leveled against usury. Modern people think of usury as very high interest
rates charged on a loan.
But this was by no means the meaning until recent times.
Classically, usury means any rate whatsoever charged on a loan, no matter how low.
The prohibition of usury was a prohibition against any interest charge on a loan.
With one exception, no one in the ancient world, whether in Greece, China, India or
for Mesopotamia prohibited interest. That exception was the Hebrews, who in an expression of narrow
tribal morality permitted charging interest to non-Jews, but prohibited it among Jews.
The fierce medieval Christian assault on usury is decidedly odd. For one thing, there is
nothing in the Gospels or the early Fathers, despite their hostility to trade, that can
can be construed as urging the prohibition of usury.
In fact, the parable of the talents in Matthew, chapter 25, verses 14 through 30, can easily
be taken as approval for earning interest on commercial loans.
The campaign against usury begins with the First Church Council in Nicaea in 325, which
which itself prohibited only the clergy from charging interest on a loan.
But the Nicene Council grabbed on to one phrase of Psalm 14 in the Old Testament,
Lord, who shall dwell in thy tabernacle, he that hath not put out his money to usury?
And this was to become the favorite and virtually the only biblical text against usury during
in the Middle Ages.
The Nicene Injunctions were repeated in later 4th century councils at Alvira in Spain and
at Carthage, and then in the 5th century Pope Leo I extended the prohibition to the laity
as well, condemning lay userers as indulging in turpe lucrum.
Several local councils in Gaul in the 7th century repeated Leo's denunciation, as did
Pope Adrian and several English Church synods in the 8th century.
But the prohibition of all usury enters secular legislation for the first time in the all-embracing
totalitarian regime of the Emperor Charlemagne.
At the fateful imperial synod of Aachen in 789, Charlemagne prohibited usury to everyone
in his realm, lay and cleric alike.
The prohibition was renewed and elaborated in the later council at Nijmegen in 806,
where usury is defined for the first time as an exchange where more is demanded back
than what is given.
So that, from the time of Charlemagne, usury was intensely held to be a special and particularly
But oddly, though the hostility toward usury continued, and was, indeed, greatly strengthened,
The sweeping definition, more demanded than what is given, was repeated intact by canonists from the 10th century Regino of Prum through Ivo of Chartres to Grecian.
But oddly, though the hostility toward usury continued and was indeed greatly strengthened among the canonists, the explicit basis for the antagonism changed considerably.
During the first centuries of the Christian era, usury was shameful as a form of avarice, or lack of charity.
It was not yet considered a vicious sin against justice.
As commerce began to revive and flourish in 11th century Europe, indeed, denouncing interest-taking as a form of lack of charity began to be considered wide of the mark,
Since charity had little to do with commercial loans, it was the Italian monk St. Anselm of Canterbury 1033-1109 who first shifted the ground of attack to rail against usury as theft.
This new doctrine was developed by St. Anselm's disciple Anselm of Lucca, a fellow Italian and native of a city with a burgeoning textile industry.
In his collection of canons, made about 1066, Anselm of Lucca explicitly condemned usury as theft and a sin against the seventh commandment,
and Demanded Restitution of Usuries to the Borrower as Stolen Goods.
This expansion of theft to a voluntary contract where no coercion was used was surely bizarre,
and yet this outrageous new concept caught hold and was repeated by Hugh of St. Victor, 1096-1141,
and by the collections of Ivo of Chartres.
In 1139, the Second Lateran Council of the Church explicitly prohibited usury to all men, laity as well as clergy, and held all usurers to be infamous.
The council vaguely declared that the Old and New Testaments mandated such a prohibition, but gave no explicit reference.
Nine years later, Pope Eugene III moved against the common practice of monasteries charging interest on mortgages.
Finally, the canon law reached mature form with the Decretum of Gratian.
Gratian hammers away against usury with whatever weapons he can find,
from Psalm 14 to the new view that usury is theft and therefore requires restitution.
and Constitution. Expounding on the strict prohibition of usury,
Gracian extended it to the loan of goods as well as money, so long as anything is demanded
beyond the principle, and he expressly declared that in such a case the just price was not
the common market price, but zero, that is, the exact equivalent of the goods or money
The great decretalist Pope Alexander III might have been inclined towards a free market in
other areas, but on the usury question he merely deepened and extended the ban, applying
the condemnation to charging higher prices for credit than for cash sales.
This practice was denounced as implicit usury, even though it was not explicitly interest
on a Loan.
The Third Lateran Council, presided over by Pope Alexander III in 1179, condemned usury
and excommunicated and denied Christian burial to all manifest userers.
The next pope, Urban III, 1185-1187, in his Decretal Consoluit, dredged up a previously
The Unused Citation from Jesus, Lend Freely, Hoping Nothing Thereby, Luke 6 verse 35, which
from then on became the centerpiece of the theological condemnation of usury as a mortal
sin, and not only that, even the very hope of obtaining usury was supposed to be a virtually
equivalent sin.
So pervasive was the canonist obsession with usury, that Gratian, his predecessors and
his successors, largely worked out their theories of sale, profit, or just price, in terms of
whether or not any particular transaction fell under the dread rubric of usury.
Thus, late 12th century decretists like Simon of Bosignano in 1179, and the great Hugguccio
Huguchio in 1188 maintained the strict prohibition of any interest charged on a loan as usury,
while allowing the renting of a good or buying cheap in order to sell deer as not being cases
of usury.
Huguchio's tortured moral distinction maintained that a comodatum, a rental contract that transferred
and Only the Use of a Good was somehow morally very different from a mutuum, a pure loan
where ownership was transferred for a time.
Charging for a lease, a commodatum, was all right, because the owner retains ownership
and charges for the use of his own good.
But somehow it becomes sinful when a lender charges for the use of a good which he no
Profits on trade, too, could be legitimate and lawful as a reward for risk, but interest
on a loan, where the risk is borne by the borrower and not the lender, was always usury.
The later decretalists attempting to combat practices of merchants in disguising usury
in various contracts, pressed on to condemn such contracts as implicit usury, provided,
as we have seen in treatment of sales contracts, that there is no uncertainty on the future
price in the minds of buyer and seller.
The early 13th century canonist Alanis Anglicus declared that if there was uncertainty in
In such a contract, and buyer and seller stood equal chance to gain or lose, usury did not
exist. Providing the first real, if small, loophole in the sweeping prohibition against
usury, Anglicus explained that this form of implicit usury could exist only in the mind,
and could not be subject to legal enforcement. This uncertainty loophole was widened slightly
in the Decretals of Gregory Ninth.
On the other hand, the canonists persisted in cracking down on evasions of the usury
ban which the market kept creatively inventing.
Contracts providing for deferred payment on a sale were treated with suspicion, and very
high prices in such a contract were taken by the canonists to prove intent to commit
usury beyond a reasonable doubt.
The decretals also went so far as to condemn creditors charging interest for loans to traveling
merchants, even though the canonists realized that the interest was a direct compensation
for risks.
Although canonists after Innocent Fourth began to talk of risks justifying profits, so that
and a profit on risky investments was considered perfectly justified.
Any interest on a pure loan or mutuum was condemned as usury despite reasonably mitigating circumstances.
The usury prohibition was the tragic flaw in the economic views of medieval jurists
and theologians.
The prohibition was economically irrational, depriving marginal borrowers and high credit
risks of any borrowed capital whatever.
It had no groundwork in natural law, and virtually none in Old or New Testament teachings.
And yet, it was clung too fiercely throughout the Middle Ages, so that jurists and theologians
Medievalists had to engage in ingenious and artful twists in reasoning in order to make
exceptions from the prohibition and to accommodate the growing practice of lending money and
charging interest on a loan.
And yet the medievalists, especially the later philosophers and theologians, had a fascinating
and important point.
Or what was the moral or economic justification for interest on a pure loan?
As we will see, medieval scholastics came to understand full well the economic and moral
justifications for almost every aspect of interest charges, as an implicit profit on
risk, as an opportunity forgone for making profits on investments, and many others.
Why is there still interest charged on a simple, riskless, non-opportunity foregone loan?
That answer was not to come fully until the Austrian school of the late 19th century.
Where the scholastics were gravely lacking was in not realizing that if interest was
paid as well as charged voluntarily, that in itself is sufficient moral justification.
and further that there must have been an economic explanation, even though economic science
had not yet discovered it.
The first systematic breach in the usury prohibition came with the last of the 13th century canonists,
Cardinal Hostiensis.
In addition to having been a distinguished law professor, Hostiensis was a worldly cosmopolite,
Having been the ambassador of Henry III to his friend Pope Innocent IV, first Hostiensis
reverted to the old milder tradition that usury is uncharitable but not a sin against
justice.
Then he listed no less than thirteen instances in which the usury prohibition could be broken
and interest charged on a loan.
One is as surety required by the guarantor of a loan. Another, that a seller may charge
a higher price for a good sold on credit than for cash, provided that there is uncertainty,
as indeed there always is, about the future price of the commodity. Another important
exception allowed a creditor to write a penalty clause into a loan, so that the debtor would
have to pay a penalty above the principal if he did not repay on the date due.
This of course paved the way for covert agreement on both sides to delay payment so as to allow
the penalty.
Another exception was that the creditor might charge for labor which he undertook in making
the particular loan.
These were all some form of penalty or special payment.
But in addition, Hostiensis provided the first path-breaking argument for charging a rate
of interest on a loan from the very beginning, a charge that does not involve delay or guarantees.
This is lucram cessans, profit ceasing, a legitimate interest charge by the creditor
and to compensate him for profit foregone in investing the money himself.
In short, Lucrum Cessans anticipated the Austrian concept of opportunity cost, of income foregone,
and applied it to the charging of interest.
Unfortunately, however, Cardinal Hostiensis' use of Lucrum Cessans was limited to non-habitual
Lenders who lend money out of charity to a debtor. Thus lenders could not be in the business
of charging money on a loan, even on the ground of lucrum cessans.
Another exception made by Hostiansus also provided an open channel for the charging of
interest on loans. He allowed the debtor to give a free gift to the creditor, so long
as long as the gift was not required by the creditor.
But in that case debtors, in particular Florentine bankers who received deposits, felt obliged
to make gifts to their depositors, else the depositors would shift their funds to competitors
who habitually made such gifts.
The making of a fake gift became an important mechanism in allowing the de facto charging
of Interest.